Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show
The cost of insuring against default on European corporate debt fell, according to traders of credit- default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 9.5 basis points to 779, according to JPMorgan Chase & Co. at 7:30 a.m. in London. A decline signals improved perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 3.25 at 182.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined five basis points to 310 and the subordinated gauge was 7.5 lower at 555.
A basis point on a credit-default swap protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.